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It was hard to find anything about this mornings abysmal jobs report to get excited about. Official data showed that just 74,000 more people found a job in December, vs. 205,000 expected.
The report is bad news for anyone hoping that the economy had turned a corner, but the downbeat data isn’t necessarily bad news for everyone. Bond investors for example are only happy when it rains. Todays report sent yields on 10 year Treasuries tumbling to 2.88%. (Treasury yields fall when bond prices rise.) The 30-year Treasury bond yield fell from 3.88% earlier in the week, and more than 3.9% last week, down to 3.82% on Friday.
One of the more surprising things to come out of this mornings data was the falling unemployment rate, which fell to 6.7% down from 7.0%. The reason for this anomaly is that the labor workforce participation rate among able-bodied workers fell to 62.8%. The lowest participation rate for over 34 years.
This creates a problem for the Fed since they set an unemployment threshold of 6.5% as the rule for a quantitative easing trigger. After todays report it looks like that will have to be ratcheted down to maybe 6.0%.
The so-called line in the sand is 3% yields in the 10-year and 4% yields in the 30-year. Says Jon Ogg of Wall St 24/7. If rates rise above these levels, two things can happen: buying interest or a panic sell gap that could lead to even higher rates.
If the jobs market is going to continue sucking wind this bad, then bonds may have just been saved from a serious rise in interest rates. At least for now.
Todays Other Top Stories
WSJ: – Wall Street muni-bond fees shrink fourth straight year. – Fees that Wall Street charges U.S. cities and states to sell their bonds fell for a fourth straight year in 2013 as dwindling debt issuance intensified competition among banks for underwriting business.
Reuters: – U.S. municipal adviser rule unveiled; raises transaction worries. – The board overseeing the U.S. municipal bond market on Thursday proposed a strict code of conduct for financial advisers to cities and states, including a ban on their role in principal transactions – a change that has raised concerns in the securities industry.
Income Investing: – A 33rd straight outflow – But a very small one! – for muni funds. – Some good news on the muni front: muni-bond mutual funds and ETFs just recorded their 33rd straight weekly outflow. Maybe that’s not good news on the face of it, but the latest net weekly outflow was a mere 189 million, per Lipper data, the smallest outflow seen since May and down sharply from the $1.5 billion weekly net outflows posted each of the previous two weeks. The four-week moving average net outflow fell to $1.2 billion from $1.6 billion a week before.
Stateline: – Fiscal outlook brighter in most states. – California and New York are flush heading into 2014, while at the other extreme Alaska and Kansas are hurting. Overall, most states are in good shape—albeit with a bit of a hangover from the recession and some uneasiness about the future.
LearnBonds: – Long term bond funds – How to decide if they are right for you. – Long-term bond funds, can provide the types of returns that are usually linked to high-risk assets types like small-cap stocks. Often, when the returns on bonds fall, longer-term funds perform best. But are they right for you in the current climate? Here’s what you need to look for.
Emanuel Marot: – Bonds vs. Peer lending: Differences in risks. – Investing in Peer Lending loans is becoming increasingly popular. Lending Club, the US market leader, has issued more than $3B in consumer credit, and there is now a frenzied competition amongst investors to snatch up the best loans.
WSJ: – Treasury bonds rebound from Wednesday’s selloff. – U.S. Treasury bond prices rose after Wednesday’s sell off as the benchmark 10-year yield around 3% continues to attract buying interest.
WSJ: – Grab for yield raises risk stakes. – Investors are still snapping up corporate bonds even as yield premiums erode quickly. European debt may still offer opportunities—but investors will have to stomach higher risk.
BusinessWeek: – U.S. corporate bond issuance in slowest start to year since ’08. – Sales of corporate bonds in the U.S. are off to the slowest start in six years as relative yields narrow to the least since 2007.
Forbes: – High yield bond funds see big $642M investor cash inflow. – Retail cash inflows from high-yield funds totaled $642 million for the week ended Jan. 8, according to Lipper, a division of Thomson Reuters. This is a complete reversal of last week’s $643 million outpouring that rang in the new year.
BDLive: – Decline of emerging markets greatly exaggerated. – The big U.S. financial institutions — Goldman Sachs, JPMorgan and Morgan Stanley — all have negative views on emerging markets for the year. Goldman Sachs even recommends that clients cut exposure to emerging markets by a third.
FT: – EM debt risk – the devil is in the detail. – Investors in US dollar-denominated bonds issued by emerging market corporates are worried that the greenback’s rise, together with a broad decline in EM currencies, could increase the risk of defaults on their holdings. How worried should they be?
CNBC: – Emerging market bond sales make bumper start to 2014. – Emerging markets have kicked off their 2014 borrowing campaigns in style, with bond sales since the start of the year up 64 percent from year-ago levels and hefty order books contrasting with weakness in broader emerging assets.
Reuters: – Emerging market bond sales make bumper start to 2014. – Emerging markets have kicked off their 2014 borrowing campaigns in style, with bond sales since the start of the year up 64 percent from year-ago levels and hefty order books contrasting with weakness in broader emerging assets.
Reuters: – U.S.-based taxable bond funds attract $4.6 bln -Lipper. – Investors in U.S.-based funds poured $4.6 billion into taxable bond funds in the latest week and limited their commitments to stock funds, taking profits after stellar stock market gains in 2013, data from Thomson Reuters’ Lipper service showed on Thursday.
InvestmentWeek: – Ten bond funds that beat the sell-off – and ten that didn’t. – Since Federal Reserve chair Ben Bernanke first raised the prospect of tapering on 22 May, bond funds have endured a torrid run, but some have coped much better than others.
WSJ: – Getting a bead on bonds remains difficult. – In an old joke, three economists go hunting and spot a deer. One fires, but his aim is a foot to the left. Another misses by the same distance to the right. The third holds fire and lets the deer escape, exclaiming: “We got it!”
InvestorPlace: – Should you load up on bond ETFs now? – Given that it is tough to find high-yield blue chip stocks nowadays — especially because of the big gains in the equities markets — it’s certainly worth taking a look at fixed-income alternatives, especially since the Treasury yield is near 3% (for 10-year securities).
Gross: Weather influences report? A little perhaps but not the anemic wage growth or decline in workweek. 3% growth for all 2014 a challenge
— PIMCO (@PIMCO) January 10, 2014
Break above 3% yield on 10yr rebuffed again. S/T top in place. Yields likely range-bound until early Feb & next round of top tier data.
— AnthonyValeri (@Anthony_Valeri) January 10, 2014
RBC: #Muniland net outflows this week were only $19 million compared to $1.47 billion the week prior, the best since May 22, 2013
— Cate Long (@cate_long) January 10, 2014